S. Korea advised to brace up for lengthy strong USD trend

Foreign and domestic financial institutions advised South Korean government and enterprises to brace up for lengthy strengthening trend in the U.S. dollar.

The Financial Supervisory Service (FSS) held a meeting on Tuesday with heads of the Seoul branches of foreign banks including JP Morgan, Deutsche Bank, and BNP Paribas as well as domestic banks to discuss forex market outlook.

Banks and the FSS agreed that they need to draw up measures to prepare for a prolonged period of a strong dollar

The recent fall in the value of the Korean won is largely attributed to the decline in the euro and the yen against the strong U.S. dollar, said the participants.

According to the banks, the global monetary tightening and slowing global commerce also bode badly for export-reliant economies like South Korea and their currency value.

However, the relatively stable foreign currency liquidity conditions in the FX swap market indicate that the current economic situation differs from the past financial crisis periods.

According to local banks’ review of the foreign exchange liquidity, the liquidity coverage ratio (LCR) came to 124.2 percent, well above the required threshold of 80 percent thanks to the FSS utilizing insurance companies’ foreign exchange debt to boost foreign exchange liquidity in the swap market.

“Since FX volatility won’t likely ease in near term, institutions must keep their foreign exchange liquidity stable to respond to liquidity challenges,” said deputy governor Kim Young-ju of the FSS.

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